I got it working. I ended up installing the .nsp and it worked perfectly. I think maybe using zerotwoxci is the issue, as I also feel like converting it to .nsp another way or just running it through homebrew as .xci would work too. Haven't had issues with other games yet with zerotwoxci, but it's good to keep in mind. Hope this solves it for you too.I also installed the xci with zerotwoxci. I tried to convert it to nsp but I must have failed since it wouldn't start anymore.
It may work with an older version of firmware? I cannot try it right now. I'm also not sure what is the minimum firmware version for Smash 1.2.1.